On 27 March 2013, the London Stock Exchange (LSE) announced the launch of its new High Growth segment of the Main Market and published the final rulebook for the segment. Last month, we reported on the LSE's proposals to introduce a new segment to the Main Market specifically designated for high growth, UK and European businesses that require access to further capital and growth opportunities on the Main Market. Click here for our newsflash on the announcement of the High Growth segment.
On 13 February, the LSE published a draft rulebook on the new market for consultation. Whilst the LSE states that the responses they had received during consultation were supportive of the objectives of the new segment, there were a few issues raised on certain aspects of the proposed rules and framework. The LSE responded to these issues in its feedback statement which was published alongside the final rulebook.
Here are the LSE responses to the key issues raised:
Why only Europe?
Some respondents queried why the segment is only being made available to applicants incorporated in EEA states. The LSE confirmed that this is to ensure that all issuers are subject to a consistent level of financial services and corporate law provided for in the EEA directives, particularly since the Listing Rules will not apply to the segment. The LSE does note, however, that it will keep the need for this eligibility requirement under review. We query whether the market will be convinced by this response given that the segment is an EU regulated market and therefore, as is the case for standard listed issuers, all issuers, regardless of where they are incorporated, will be subject to applicable EU minimum directives (for example, the Transparency Directive and the Prospectus Directive).
What is meant by a "trading business" and "CAGR"?
The LSE notes that the High Growth Segment is intended for revenue earning commercial businesses. Rather than provide a prescriptive list, which would potentially be non-exhaustive, the LSE encourages Key Advisers to approach it at an early stage to discuss the potential eligibility of an applicant. The LSE has also amended the definition of "CAGR" (compound annual growth rate) to clarify that a four year range of financial data is required to demonstrate the 20% growth in audited consolidated revenue over a three year period. Where an applicant has particular historic issues that may make the calculation of CAGR complex, this can be addressed by the Key Adviser, either with the LSE directly or in the draft eligibility letter.
The draft rules were unclear as to whether a reverse takeover required the approval of a majority of no less than 75% of shareholders – which is higher than the simple majority required under the Listing Rules and the AIM Rules. The draft rules also seemed to suggest that further shareholder approval was required to cancel the securities in relation to reverse takeovers. The LSE has addressed this confusion by providing in the final rules that reverse takeovers are conditional upon consent of a simple majority of shareholders and where such shareholder approval is given, the securities will be cancelled automatically. The rulebook also provides that a circular will not be required where a prospectus for the issuer as enlarged by the takeover is published and sent to shareholders with the notice of the meeting to approve the reverse takeover.
Deadline for transferring to the Official List?
The rulebook requires applicants to make a non-binding statement of intention in the prospectus to move to the Official List in due course – but no time limit is specified. The LSE states that whilst the new segment has been designed to be a transitional admission route to the Official List, it is reluctant to impose prescriptive restrictions "that may conflict with an issuer's corporate development strategy". The rules have been amended, however, so that the non-binding statement of intention also sets out how the issuer intends to satisfy the eligibility criteria for admission to the Official List. The LSE further provides that it intends to work with issuers to ease the transition to the Official List. One might query whether this suggests that the LSE will monitor an issuer's position on the market to see whether a step-up to the Official List is appropriate.
Wait and see
Whilst the new market provides increased choice for issuers and investors looking to participate in the London markets, depending on where the current consultation on free float for the standard segment ends up, the new High Growth segment may end up looking very similar to the standard segment of the Main Market. It will be interesting to see which segment companies choose if they are eligible both for standard and the High Growth segment and whether the LSE will be successful in attracting a critical mass of companies to list on the High Growth segment. The success of one may determine the future of the other - we shall wait and see whether this will trigger further analysis by the LSE of its portfolio of equity capital markets.